Essentials of Contemporary Management

Chapter

Organizing: Designing Organizational Structure

Learning Objectives
After studying the chapter, you should be able to:
Identify the factors that influence managers choice of an organizational structure.
Explain how managers group tasks into jobs that are motivating and satisfying for employees. Describe the types of organizational structures managers can design, and explain why they choose one structure over another. Explain why there is a need to both centralize and decentralized authority.
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Learning Objectives (contd)

Explain why managers must coordinate and integrate between jobs, functions, and divisions as an organization grows. Explain why managers who seek new ways to increase efficiency and effectiveness are using strategic alliances and network structures.

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Organizational Structure
Organizational Architecture
The organizational structure, control systems, culture, and human resource management systems that together determine how efficiently and effectively organizational resources are used.

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Designing Organizational Structure

Organizing
The process by which managers establish working relationships among employees to achieve goals.

Organizational Structure

Formal system of task and reporting relationships showing how workers use resources.

Organizational design
The process by which managers make specific choices that result in a particular kind of organizational structure.
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Factors Affecting Organizational Structure

Figure 7.1

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Determinants of Structure
The Organizational Environment
The quicker the environment changes, the more problems face managers. Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid.

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Determinants of Structure
Strategy
Different strategies require the use of different structures.
A differentiation strategy needs a flexible structure, low cost may need a more formal structure.

Increased vertical integration or diversification also requires a more flexible structure.

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Determinants of Structure
Technology
The combination of skills, knowledge, tools, equipment, computers and machines used in the organization. More complex technology makes it harder for managers to regulate the organization.
Organizations utilizing complex technology require a flexible structure to be managed efficiently. Organizations utilizing routine technology can be more readily managed using a formal structure. Organizations with high employee interaction requirements need a flexible structure.
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Types of Technology
Small Batch Technology
Small quantities of one-of-a-kind products are produced by the skills of the workers who work together in small groups.
Appropriate structure is decentralized and flexible.

Mass Production Technology

Automated machines that are programmed to make high volumes of standard products.
Formal structure is the best choice for workers who must perform repetitive tasks.

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Determinants of Structure
Human Resources
Highly skilled workers whose jobs require working in teams usually need a more flexible structure. Higher skilled workers (e.g., CPAs and doctors) often have internalized professional norms.

Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization.

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Organization Structure Issues

How to group tasks into individual jobs. How to group jobs into functions and divisions. Coordinating functions and divisions. Allocating authority.

Types of integrating mechanisms.

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Grouping Tasks Into Jobs: Job Design

Job Design

The process by which managers decide how to divide tasks into specific jobs.

Division of Labor
Splitting the work to be performed into particular tasks and assigning tasks to individual workers.
The appropriate division of labor results in an effective and efficient workforce.

Job Simplification
Reducing the tasks each worker performs: too much simplification and boredom results.
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Job Design
Job Enlargement
Increasing the number of tasks for a given job by changing the division of labor. The intention is to reduce boredom and fatigue by increasing variety of tasks performed.

Job Enrichment
Increasing the degree of responsibility a worker has over a job.
Intended to increase worker involvement. Requires a flexible organizational structure to allow employees to act flexibly and creatively.
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The Job Characteristics Model

Source: Adapted from J. R. Hackman and G. R. Oldham, Work Redesign (Reading, MA: Addison-Wesley, 1980).

Figure 7.2

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Job Characteristics Model

Job Characteristic
Skill variety Task identity Employee uses a wide range of skills. Worker is involved in all tasks of the job from beginning to end of the production process Worker feels the task is meaningful to organization. Employee has freedom to schedule tasks and carry them out. Worker gets direct information about how well the job is done.

Task significance Autonomy Feedback

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Grouping Jobs into Functions

Functional Structure
An organizational structure composed of all the departments that an organization requires to produce its goods or services. Advantages
Encourages learning from others doing similar jobs. Easy for managers to monitor and evaluate workers.

Disadvantages
Difficult for departments to communicate with others. Preoccupation with own department and losing sight of organizational goals.
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The Functional Structure of Pierl Imports

Figure 7.3
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Divisional Structures
Divisional Structure
An organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer.
Divisions create smaller, manageable parts of a firm. Divisions develop a business-level strategy to compete. Divisions have marketing, finance, and other functions. Functional managers report to divisional managers who then report to corporate upper management.
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Types of Divisional Structures

Product Structure
Customers are served by self-contained divisions that handle a specific type of product or service.
Allows functional managers to specialize in one product area. Division managers become experts in their area. Removes need for direct supervision of division by corporate managers. Divisional management improves the use of resources.

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Product, Market, and Geographic Structures

Figure 7.4
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Types of Divisional Structures (contd)

Geographic Structure
Each regional or a country or area with customers with differing needs is served by a local selfcontained division producing products that best meet those needs. Global geographic structure
Different divisions serve each world region when managers find different problems or demands across the globe. Generally, this structure is adopted when managers are pursuing a multidomestic strategy.
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Viacoms 2001 Product Structure

Figure 7.5

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Types of Divisional Structures (contd)

Market (Customer) Structure
Each kind of customer is served by a self-contained division Global market (customer) structure
Customers in different regions buy similar products so firms can locate manufacturing facilities and product distribution networks where they decide is best. Firms pursuing a global strategy will use this type of structure.

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Global Geographic and Global Product Structures

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Matrix Design Structure

Matrix Structure
An organizational structure that simultaneously groups people and resources by function and product.
Results in a complex network of superior-subordinate reporting relationships. The structure is very flexible and can respond rapidly to the need for change. Each employee has two bosses (functional manager and product manager) and possibly cannot satisfy both.
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Matrix Structure

Figure 7.6a

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Product Team Design Structure

Product Team Structure
The members are permanently assigned to the team and empowered to bring a product to market.
Avoids problems of two-way communication and the conflicting demands of functional and product team bosses.

Cross-functional team is composed of a group of managers from different departments working together to perform organizational tasks.

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Product Team Structure

Figure 7.6b

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Coordinating Functions and Divisions: Allocating Authority

Authority
The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources.

Hierarchy of Authority
An organizations chain of command, specifying the relative authority of each manager.
Span of Control: refers to the number of workers a manager manages.

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Allocating Authority (contd)

Span of Control

The number of subordinates who report directly to a manager.

Line Manager
Managers in the direct chain of command who have authority over people and resources lower down.
Primarily responsible for the production of goods or services.

Staff Manager
Managers who are functional-area specialists that give advice to line managers.
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The Hierarchy of Authority and Span of Control at McDonalds Corporation

Figure 7.7

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Tall and Flat Organizations

Tall structures have many levels of authority and narrow spans of control.
As hierarchy levels increase, communication gets difficult, creating delays in the time being taken to implement decisions.

Communications can also become garbled as it is repeated through the firm.

Flat structures have fewer levels and wide spans of control.

Structure results in quick communications but can lead to overworked managers.
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Flat Organizations

Figure 7.8a

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Tall Organizations

Figure 7.8b

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The Minimum Chain of Command

Managers should carefully evaluate:
Do the organization have the right number of middle managers? Can the structure be altered to reduce levels?

Centralized and Decentralized of Authority

Decentralization puts more authority at lower levels and leads to flatter organizations.
Works best in dynamic, highly competitive environments.

Stable environments favor centralization of authority.

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Integrating Mechanisms

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Integrating Mechanisms

Figure 7.9

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Strategic Alliances and Network Structures

Strategic Alliance
An agreement in which managers pool or share firms resources and know-how with a foreign company and the two firms share in the rewards and risks of starting a new venture.

Network Structure :
A series of strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product. Network structures allow firms to bring resources together in a boundary-less organization.

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